* 


in 


of  tfonnecticut-  - - 

I » I 

'•  ’ ■ V 


<3 


Report  of  the  Special  Committee  appointed , March  13, 
1878,  to  investigate  the  alleged  false  returns  of 
Railroad  Companies. 

House  op  Representatives, 

January  Session  of  the  General  Assembly, 

A.  D.  1878. 

The  Special  Committee  of  the  House  of  Representatives, 
appointed  under  a resolution  authorizing  the  Speaker  to 
appoint  a committee  to  investigate  railroad  returns,  and  “ to 
ascertain  and  report,  at  as  early  a day  as  is  practicable, 
whether  or  not  it  is  true  that  the  railroad  companies,  or  any 
of  them,  have  been  and  now  are  in  the  practice  of  making 
false  returns  to  the  Railroad  Commissioners,  as  alleged  in 
repeated  representations  made  to  the  General  Assembly  ; and 
if  it  be  true,  how  far  and  to  what  extent  the  Railroad  Com- 
missioners are  responsible  for  not  having  the  returns  cor- 
rected ; also,  whether  any  of  the  railroad  companies  (and  if 
any,  which  of  them)  have  4 issued  capital  stock  unwarranted 
by  bond  jide  investments  of  actual  values,’  or  have  issued 
capital  stock  in  exchange  for  fictitious  or  watered  capital 
stock  previously  issued  by  other  companies,  and  are  compel- 
ling the  public  to  pay  dividends  on  the  same  by  charging  high 
rates  for  the  transportation  of  passengers  and  freights  ; also, 
the  amount  of  fictitious  or  watered  capital  stock  issued  or 
exchanged  by  said  companies  respectively,  and  the  manner 
and  the  means  by  which  the  issue  or  exchange  of  said  capital 
stock  has  been  concealed  or  covered  up.  That  said  committee 
also  report,  by  virtue  of  what  authority  and  under  what  law 
this  fictitious  or  watered  caj^^k  stock  has  been  issued  or 


* 

2 

exchanged,  and  whether  any  legislation,  and  if  any,  what,  is 
necessary  to  prevent  a repetition  of  such  ‘ evil  practices,’  ” 
respectfully 

REPORT . 

That  charges  of  incompleteness  and  inaccuracy  in  the 
returns  made  by  several  of  the  railroad  companies  to  the 
Railroad  Commissioners  have  been  preferred  to  the  General 
Assembly  in  different  forms  since  the  year  1871,  by  Mr.  H. 
L.  Goodwin,  who  that  year  was  a member  of  the  House  of 
Representatives  from  East  Hartford. 

Before  your  committee,  the  said  H.  L.  Goodwin  made  and 
submitted  to  their  consideration  the  following  charges  and 
specifications  against  the  Hartford  & New  Haven ; the 
New  York  & New  Haven ; the  New  York,  New  Haven  & 
Hartford ; the  Danbury  & Norwalk ; the  Shore  Line ; the 
Naugatuck,  and  the  New  Haven  & Northampton  Railroad 
Companies,  and  the  Railroad  Commissioners,  to  wit : 

Allegations  against  the  Hartford  & New  Haven  Rail- 
road Company. 

1.  That  said  Hartford  & New  Haven  Railroad  Company 
reported  to  the  Railroad  Commissioners  in  1865,  that  the  capital  of 
the  company  paid  in  since  the  last  report  (made  in  1864)  was, 
$650,000  ; whereas  $470,000  of  the  $650,000  was  not  paid  in, 
but  was  issued  as  a stock  dividend  of  twenty  per  cent. 

2.  That  said  company  in  1868  reported  its  “capital  paid  in 
since  last  report,”  (made  in  1867),  was  $300,000,  whereas  a large 
portion  of  this  $300,000  was  not  paid  in. 

3.  That  in  1871,  the  said  company  reported  $1,500,000  as  paid 
in  since  the  last  annual  report,  whereas  only  $750,000  was  paid  in 
during  that  year. 

4.  That  in  1871  said  company  reported  its  “ capital  paid  in,”  at 
$5,000,000,  whereas  not  exceeding  $3,600,000  had  been  paid  in  at 
that  time. 

5.  That  in  1869,  said  company  reported  the  cost  of  its  equip- 
ment at  $254,000,  and  that  in  1870,  the  company  reported  the  cost 
of  its  equipment  at  $800,000.j^That  during  the  year  within  which 
these  two  reports  were  madj^^^^mpany,  added  to  its  equipment 


B 


E 


only  four  passenger  cars,  and  eighty-four  baggage  or  freight  cars, 
the  cost  of  which  could  not  have  exceeded  $80,000.  That,  con- 
sequently, either  one  or  the  other  of  the  statements  of  the  com- 
pany as  to  the  cost  of  its  equipment  must  have  been  untrue. 

6.  That  said  company,  in  reporting  to  the  Railroad  Commis- 
sioners,  did  for  several  years,  suppress  its  “ surplus  earnings  for  the 
year,”  and  also  its  “total  surplus,”  or  undivided  earnings,  notwith- 

~ standing  the  law  required  a report  of  both  to  be  made  annually, 
and  that  this  surplus  was  reported  to  the  railroad  commissioners 
- in  1872,  to  be  $706,751. 

7.  That  within  a few  months  after  the  payment  to  the  company 
by  the  stockholders  of  $1,500,000  of  capital  in  1872,  there  was 
paid  back  to  the  stockholders,  not  as  a dividend  of  earnings,  but 
in  addition  to  the  dividends  of  12  per  cent  for  the  year  the  sum 
of  $671,450,  so  that  of  the  $1,500,000  paid  in  that  year,  only 
$828,550  remains  invested  in  the  company,  and  that  consequently, 
of  this  $3,000,000  of  increased  capital  issued  in  1870  and  1872, 
only  $1,578,550  was  actually  invested  by  the  stockholders. 

8.  That  in  reporting  its  dividends  to  the  Railroad  Commis- 
sioners it  suppressed  and  omitted  the  stock-dividends  of  20  per 
cent,  which  dividend  was  4,700  shares,  the  market  value  of  which 
was  $1,077,500,  or  45  per  cent,  on  the  outstanding  capital  of 
$2,350,000. 

Allegations  against  the  New  York  & New  Haven 


Railroad  Company. 


1.  That  in  1867  the  New  York  & New  Haven  Railroad  Com- 
pany reported  “Capital  paid  in  since  last  report  (made  up  to 
September  30,  1866),  was  $2,017,385,”  which  report  was  untrue; 


The  report  of  the  directors  made  to  the  stockholders  showing  that 


between  April  1866,  and  April  1868,  a period  of  two  years,  only 
$996,000  of  capital  stock  has  been  paid  in.* 

* At  least  $616,700  of  this  discrepancy  can  be  accounted  for  by  the  issue  of 
that  amount  of  capital  stock  in  the  year  ending  September  30,  1864,  which 
amount  the  then  president  of  the  company  (Mr.  Carhart)  reported  as  “ Increase 
of  capital  since  last  report,”  but  which  he  did  not  report  as  having  been  paid  in, 
he  having  reported  that  year, 

Capital  stock  [issued], $3,616,700 

Increase  of  capital  since  last  report, 616,700 

Capital  paid  in  per  last  report, 2,980,839 

Total  amount  of  capital  paid  in, 2,980,839 

After  Mr.  Bishop  became  president  in  1867,  and  not  till  then,  the  total  amount 
of  capital  issued  was  reported  as  all  paid  in.  The  year  previous  Mr.  Carhart 
reported  capital  issued  $5,000,000.  Total  amount  of  capital  paid  in  $3,982,614. 


4 


2.  That  in  1867,  (Mr.  Bishop  being  then  the  president),  the 
company  reported  to  the  Railroad  Commissioners  the  cost  of  its 
road  and  equipment  on  September  30,  1867,  at  $7,720,846,  while 
in  April  1868  (seven  months  later)  he  reported  to  the  stockholders 
the  cost  of  the  road  and  equipment  at  only  $5,270,611;  and  that 
in  this  report  to  the  stockholders  he  included  as  part  of  this 
$5,270,611,  the  “Railroad,  franchise,  right  of  way,  grading,  ma- 
sonry, bridging,  fencing,  superstructure,  iron,  station-houses,  shops, 
fixtures,  machinery,  engineering,  interest,  discount  on  bonds,  etc.” 

3.  That  said  company  did,  during  the  following  year,  (and 
without  informing  the  stockholders  of  the  fact,)  include  as  part  of 
the  cost  of  the  road,  the  sum  of  $1,772,868,  it  being  the  amount 
of  the  “Loss  by  the  Schuyler  fraud,”  and  that  that  year  the  mar- 
ket value  of  the  stock  of  the  company,  as  reported  to  the  Comp- 
troller for  taxation,  was  increased  from  $120  to  $138  per  share. 

4.  That  said  company  reported  to  the  Railroad  Commissioners 
that  it  had  a surplus  of  $722,851  on  the  30th  September,  1868, 
whereas,  instead  of  a surplus,  its  capital  was  impaired  at  that  time 
to  the  extent  of  $1,050,017,  it  being  the  amount  of  the  previously 
admitted  loss  by  the  Schuyler  fraud  ($1,772,868),  less  the  amount 
of  undivided  earnings  ($722,851). 

5.  That  in  violation  of  the  law  of  1867,  which  makes  it  a mis- 
demeanor for  the  officers  of  any  corporation  to  declare  a dividend 
when  its  capital  is  impaired  (see  p.  280  General  Statutes,  Sec- 
tion 16),  the  company  declared  dividends  from  1867  to  1872, 
although  its  capital  was  during  all  that  time  impaired. 

6.  That  said  company  untruthfully  reported  in  1871  its  paid- 
in  capital  at  $7,500,000,  whereas  its  paid-in  capital  did  not  exceed 
$6,500,000. 

Allegations  against  the  New  York,  New  Haven  & Hart- 
ford Railroad  Company. 

1.  That  from  1872  to  1876  inclusive,  the  New  York,  New 
Haven  & Hartford  Company  reported  its  “ capital  actually  paid 
in  ” at  $15,500,000,  whereas  not  exceeding  $12,360,000  had  been 
paid  in. 

2.  That  said  company  from  1872  to  1876,  in  answer  to  ques- 
tion 4 : “ Capital  stock  issued  for  undivided  earnings  ? ” reported 
“none”  to  the  Railroad  Commissioners,  and  that  in  answer  to 
question  5 : “ Capital  stock  upon  which  no  payment  had  been  made 
either  in  cash  or  its  equivalent?  ” also  answered  “ none;  ” whereas 


I 


5 


it  should  have  reported  in  answer  to  one  or  both  of  said  questions 
at  least  $3,700,000;  or  else  its  answer  to  both  of  said  questions 
should  have  amounted  in  the  aggregate  to  $3,700,000,  in  round 
numbers. 

3.  That  from  1872  to  1877  inclusive,  said  company  has  over- 
stated the  cost  of  its  road  and  equipment  not  less  than  $1,772,868, 
and  probably  overstated  it  nearly  $2,000,000. 

4.  That  from  1872  to  1877  inclusive,  said  company  has  over- 
stated its  surplus  annually  some  $1,772,868. 

Allegation  against  the  Danbury  & Norwalk  Railroad 

Company. 

1.  That  said  company  from  1871  to  the  present  time  has  over- 
stated the  cost  of  its  road. 

2.  That  acting  under  instructions  from  the  Railroad  Commis- 
sioners, said  company  in  1876  and  1877  reported  its  total  capital 
of  $600,000  as  all  actually  paid  in ; whereas,  only  $332,100  had 
been  paid  in. 

Allegation  against  the  Shore  Line  Railroad  Company . 

1.  That  in  1871  and  1872  said  Shore  Line  Company  reported 
its  total  capital  of  $1,000,000  was  paid  in,  and  that  from  1872 
to  1877  inclusive  it  reported  its  total  capital  as  “actually  paid  in;” 
whereas,  only  $740,971  had  been  paid  in. 

2.  That  said  Shore  Line  Railroad  has  untruthfully  reported  the 
cost  of  its  road,  overstating  its  cost  some  $250,000. 

Allegation  against  the  Naugatuck  Railroad  Company. 

1.  That  said  Naugatuck  Company  from  1865  to  1872  reported 
its  paid-in  capital  stock  some  $600,000  above  the  amount  paid  in. 

2.  That  from  1872  to  1877  said  company  overstated  the  amount 
of  its  “capital  stock  actually  paid  in,”  by  some  $600,000. 

3.  That  said  company  has  from  1865  to  1877  overstated  the 
cost  of  its  road,  and  that  it  is  now  overstated  some  $450,000. 

4.  That  said  company  in  1872  to  1875  reported  its  watered 
capital  at  only  $142,700  ; whereas,  it  was  over  $600,000. 


6 


Allegation  against  the  New  Haven  & Northampton 
Company. 

1.  That  in  1872  to  1877  said  company  over-stated  the  amount 
of  its  capital  stock  actually  paid  in,  some  $570,000. 

2.  That  said  company  reported  its  watered  capital  in  1872  to 
1874  as  “none,”  whereas  it  had  issued  watered  capital  amounting 
in  1874  or  1875  to  $570,000. 

3.  That  said  company  in  1873  untruthfully  reported  its  surplus 
last  year  (Sept.  30,  1872)  at  $71,526,  whereas  it  was  $187,263;  a 
discrepancy  of  $115,736. 

Allegation  against  the  Railroad  Commissioners. 

That  from  1867  to  1872  inclusive,  they  permitted  the  railroad  com- 
panies to  make  incomplete  returns,  omitting  in  several  instances 
answers  to  forty  or  fifty  questions. 

2.  That  in  1874  they  untruthfully  informed  the  General  Assem- 
bly that  “ no  charges  of  incomplete  or  inaccurate  returns  had  been 
made  to  them.” 

3.  That  in  1875  they  neglected  and  refused  to  comply  with  the 
law  (Sec.  95,  page  339,  General  Statutes),  although  requested  so 
to  do,  by  having  the  Naugatuck,  the  New  Haven  & Northampton 
Company,  and  the  New  York,  New  Haven  & Hartford  Company 
correct  their  returns. 

4.  That  in  1876  they  issued  such  instructions  to  the  railroad 
companies  as  made  it  incumbent  upon  them  to  report  as  “ actually 
paid  in,”  capital  stock  which  was  not  paid  in. 

5.  That  in  the  text  of  their  report  to  the  General  Assembly  in 
1875,  they  said  that  the  paid-in  capital  of  the  companies  of  the 
State  amount  to  be  $36,733,244,  and  suppressed  and  concealed  the 
fact  that  some  $4,000,000  to  $5,000,000  of  this  stock  had  not  been 
paid  in  but  was  watered  capital. 

6.  That  during  the  same  year  (and  in  the  same  report)  they 
compiled  a table  of  paid-in  capital  which  included  this  $5,000,000 
of  watered  capital,  and  omitted  to  compile  any  table  of  watered 
capital. 

In  accordance  with  the  authority  conferred  by  the  before- 
mentioned  resolution,  and  with  the  aforesaid  charges  and 
specifications  before  them,  your  committee  entered  upon  such 
investigation  as  their  exceedingly  limited  time  permitted  them 
to  make. 


7 


In  consequence  of  admissions  made  by  the  Railroad  Com- 
missioners, and  by  Mr.  William  D.  Bishop, president  of  the  New 
York,  New  Haven  & Hartford  Railroad  Company,  and  one 
of  the  directors  of  the  Naugatuck  Railroad  Company,  and  in 
consequence,  also,  of  the  evidence  afforded  by  an  examination 
and  comparison  of  the  annual  returns  made  by  the  railroad 
companies  to  the  Railroad  Commissioners,  your  committee 
did  not  deem  it  advisable  to  occupy  the  limited  time  which  it 
had  (and  which  was  wholly  insufficient  for  the  perfect  accom 
plisliment  of  the  objects  for  which  your  committee  was 
appointed)  in  taking  the  testimony  of  witnesses  or  in  exam- 
ining the  books  of  the  several  railroad  companies  complained 
of. 

Upon  as  full  investigation  of  the  subject  referred  to  them, 
as  it  was  possible  to  make  under  the  circumstances  above 
stated,  your  committee  find  the  following  facts,  namely: 

THE  FINDING  OF  THE  COMMITTEE. 

Hartford  & Hew  Haven  Railroad  Company . 

In  regard  to  the  5th  and  6th  allegations  against  the  Hart- 
ford & New  Haven  Railroad  Company,  the  committee  finds 
them  to  be  true. 

In  regard  to  the  1st,  2d,  3d,  4th,  and  7tli  allegations  against 
said  company,  your  committee  find  them  supported  by  the 
reports  referred  to,  in  the  said  allegations,  and  by  the  state- 
ment made  and  submitted  to  your  committee,  by  Mr.  William 
D.  Bishop,  president  of  the  company  into  which  the  said 
Hartford  & New  Haven  Railroad  Company  was  merged 
and  consolidated. 

From  Mr.  Bishop’s  statement  it  appears,  that  at  the  time  of 
the  consolidation  of  the  Hartford  & New  Haven  Railroad 
Company  with  the  New  York  & New  Haven  Railroad  Com- 
pany, the  amount  of  the  capital  stock  of  the  Hartford  & New 
Haven  Railroad  Company  actually  issued  was  $6,500,000,  of 
which  amount  $4,982,900,  was  for  capital  “ actually  paid  in,” 
the  remaining  $1,517,100  being  “ watered  capital,”  issued  as 
dividends  to  its  stockholders,  as  follows,  to  wit : In  1864  a 


8 


stock  dividend  was  made  to  the  stockholders  amounting  to 
4,671  shares.  In  1868,  a further  stock  dividend  was  made 
amounting  to  3,000  shares.  In  1870  or  ’71,  the  stockholders 
were  allowed  to  subscribe,  pro  rata,  to  13,000,000  of  capital 
stock,  at  the  rate  of  75  per  cent,  on  its  par  value;  which  was 
equivalent  to  a further  stock  dividend  of  7,500  shares. 

The  above  comprises  all  the  stock  dividends  made  by  the 
Hartford  & New  Haven  Railroad  Company,  and  amounts  in 
the  aggregate  at  par,  to  $1,517,100,  as  follows : 


In  1864 — 4,671  shares,  or 
« 1868—3,000  44  44 
44  1870—7,500  44  44 


$468,100 

300.000 

750.000 


Total,  15,171 


$1,517,100 


A full  statement  of  every  distribution  of  stock  to  the  stock- 
holders, was  made  in  the  day  and  time  of  it,  in  the  printed 
annual  reports  of  the  directors  to  the  stockholders,  and  your 
committee  do  not  find  that  any  efforts  were  made  to  keep  the 
facts  from  the  public. 

New  York  & New  Haven  Railroad  Company. 

As  to  the  first  allegation  made  against  the  New  York  & 
New  Haven  Railroad  Company,  your  committee  find : 

That  in  1867,  this  company  reported  44  capital  paid  in  since 
last  report,”  (made  up  to  30th  September,  1866,)  was 
$2,017,385,  but  in  relation  thereto,  the  committee  further  find* 
that  in  this  sum  so  reported  to  be  paid  in,  was  included 
6,192  shares  of  stock  issue  by  said  company  in  1864,  under 
express  authority  of  the  Legislature,  in  exchange  for  double 
that  number  of  the  fraudulent  shares  issued  by  Schuyler, 
which  were  surrendered  and  canceled,  and  also  13,369  shares 
sold  by  the  company  in  1865  and  1866  to  its  stockholders, 
pro  rata,  at  $75  per  share,  the  avails  of  which  were  used  in 
paying  judgments  obtained  against  the  company,  upon  claims 
growing  out  of  said  Schuyler  frauds,  and  that  said  stock 
was  for  the  first  time  reported  as  paid  in,  in  the  report  oi 
the  year  1867. 


9 


Your  committee  find  that  the  second  allegation  made 
against  the  said  railroad  company  is  true. 

In  reference  to  the  third  charge  against  said  railroad  com- 
pany, your  committee  find  that  the  records  sustain  all  except 
the  allegation  that  the  amount  of  the  loss  by  the  “ Schuyler 
fraud,”  was  included  as  part  of  the  cost  of  the  road,  without 
informing  the  stockholders  of  the  fact. 

During  the  year  ending  March  31,  1869,  there  was  added 
to  the  cost  of  the  road,  the  sum  of  $1,772,868,  the  loss  sus- 
tained by  the  said  railroad  company,  by  the  Schuyler  fraud. 
As  this  loss  was  no  part  of  the  legitimate  cost  of  the  road,  and 
represented  a total  loss  to  the  company,  the  propriety  of  includ- 
ing it  in  the  assets  of  the  company,  is  submitted,  by  your 
committee,  to  the  consideration  of  the  House  without  com- 
ment ; but  we  are  of  the-  opinion  that  the  fact,  that  it  was  so 
added  to  the  cost  of  the  road,  appears  from  the  report  made 
to  the  stockholders  after  the  said  addition  had  been  made. 

And  as  to  the  4th  and  5th  allegations,  the  committee  find 
that  said  company  did  report  that  it  had  a surplus,  as  alleged, 
and  that  in  computing  that  surplus,  the  company  considered 
said  sum  of  $1,772,868,  the  loss  so  sustained  by  said  com- 
pany in  consequence  of  said  Schuyler  frauds,  an  asset ; and 
if  said  sum  was  improperly  considered  an  asset,  or  improperly 
charged  to  the  cost  of  the  company’s  road,  then  the  report  of 
said  company  would  show  that,  instead  of  said  surplus,  the 
capital  of  said  company  was  impaired  to  the  amount  alleged ; 
but  whether  the  capital  of  said  company  was,  in  fact,  impaired, 
or  whether  said  company  declared  dividends  in  violation  of 
said  law,  your  committee  are  not  informed. 

And  as  to  the  6th  allegation,  your  committee  find  that  it 
has,  substantially,  the  same  foundation  as  the  first  allegation. 

New  York , New  Haven  & Hartford  Railroad  Company. 

As  to  the  several  allegations  against  this  company,  the 
committee  find : That  said  company  lias  reported  to  the  Rail- 
road Commissioners  as  alleged,  but  in  relation  thereto,  they 
further  find:  That  this  " -poration  was  created  by  a consol- 
idation of  the  Hartford  & New  Haven  Railroad  Company 
2 


10 


with  the  New  York  & New  Haven  Railroad  Company,  under 
an  act  of  the  legislature  of  this  state,  passed  in  1871,  and 
was  authorized  by  said  act  to  make  its  capital  stock  equal  to 
the  aggregate  of  the  capital  stock  of  the  companies  out  of 
which  it  was  formed.  The  capital  stock  of  the  Hartford  & 
New  Haven  Railroad  Company  actually  paid  in  by  the  stock- 
holders, together  with  that  issued  as  dividends,  as  hereinbefore 
found  in  relation  to  said  company,  amounted  to  $6,500,000 ; 
and  the  capital  stock  of  the  New  York  & New  Haven  Railroad 
Company  actually  paid  in  by  the  stockholders,  together  with 
that  issued  for  the  adjustment  of  the  claims  growing  out  of 
the  Schuyler  fraud,  amounted  to  $9,000,000,  making  the  total 
amount  of  the  two  companies  $15,500,000.  The  amount 
of  capital  stock  created  by  the  consolidated  company  was 
$15,500,000,  which  was  exchanged,  -share  for  share,  with  the 
holders  of  the  stock  of  the  separate  companies,  and  was 
within  the  limits  authorized  by  the  consolidation  act.  At 
the  time  that  said  exchange  was  made,  the  consolidated  com- 
pany paid  to  the  several  holders  of  the  stock  of  the  Hartford 
& New  Haven  Railroad  Company,  the  sum  of  $10.33  on  each 
share  held  by  them,  in  order  to  fairly  adjust  the  difference  in 
value  of  the  stocks  of  the  said  two  companies,  which  payment 
amounted,  in  the  whole,  to  the  sum  of  $671,450,  and  was 
equivalent  to  a dividend  of  that  amount  to  the  stockholders 
of  the  Hartford  & New  Haven  Railroad  Company,  which  was 
not  reported  to  the  Railroad  Commissioners,  but  an  account 
of  it  was  given  by  the  said  Commissioners  in  the  body  of 
their  report  for  the  year  1872. 

Danbury  & Norwalk  Railroad  Company. 

In  regard  to  the  charges  made  against  the  Danbury  & 
Norwalk  Railroad  Company,  your  committee  find  them  to  be 
true. 

Shore  Line , Naugatuck , and  New  Haven  & Northampton 
Railroad  Companies. 

No  one  appeared  before  your  committee  in  behalf  of  the 
Shore  Line,  Naugatuck,  and  New  Haven  & Northampton 


11 


Railroad  Companies.  After  as  thorough  and  complete  an 
examination  as  it  was  possible  to  make  under  the  circum- 
stances attending  the  investigation,  and  from  an  examination 
of  the  report  of  the  said  companies,  and  from  the  testimony 
of  Mr.  Goodwin,  your  committee  are  of  the  opinion  that  the 
charges  against  said  railroad  companies  are  well  grounded  and 
substantially  true. 

Railroad  Commissioners. 

In  support  of  the  first  charge  against  the  Railroad  Com- 
missioners, your  committee  were  referred  to  the  published 
reports  of  the  commissioners  for  the  years  named.  A large 
number  of  questions  were  found  unanswered  in  those  reports 
as  alleged.  Such  omissions,  in  the  opinion  of  your  committee, 
deprive  those  reports  of  much  of  their  value,  as  sources  of 
exact  and  complete  information  in  regard  to  the  railroad 
companies  of  this  State.  No  explanation  of  said  omissions 
was  made  to  your  committee. 

In  support  of  the  second  charge  was  presented  a copy  of  a 
communication,  dated  June  1,  1874,  from  Andrew  Northrop, 
then  chairman  of  the  Board  of  Railroad  Commissioners, 
addressed  to  the  General  Assembly.  In  said  communication 
Mr.  Northrop  states  that  no  information  of  any  violation  of 
law  by  the  railroad  companies  in  making  their  reports,  had 
been  furnished  to  the  commissioners  ; but  admits  that  an 
unsigned  communication  had  been  left  with  them,  alleging 
that  there  was  an  incorrect  statement  in  certain  reports. 

In  regard  to  the  third  charge,  we  find  it  true  that  the  com- 
missioners declined  to  require  the  companies  named  to  change 
their  returns  in  the  particulars  requested  by  the  complainant, 
but  do  not  consider  that  it  was  a violation  of  law,  because  we 
think  that  under  the  law  referred  to  it  was  a matter  within 
the  discretion  of  the  Commissioners. 

As  to  the  fourth  charge,  your  committee  find  that  a construc- 
tion of  the  law  lias  been  accepted  by  the  Commissioners,  and 
which  they  claim  was  given  by  the  Legislature  of  1875,  which 
construction  is : “ that  the  amount  of  ‘ capital  stock  actually 
paid  in,’  means  the  amount  of  stock  for  which  full  paid  cer- 
tificates have  been  issued,  without  reference  to  the  amount  of 


12 


cash  paid  for  such  certificates  by  the  stockholders,  but  upon 
which  no  further  payment  of  capital  can  be  called  for.”  Act- 
ing in  accordance  with  this  construction  of  the  law,  the  Com- 
missioners issued  to  the  railroad  companies  the  instructions 
mentioned  in  the  fourth  charge.  Such  a construction  of  the 
law  appears  to  your  committee  to  be  a perversion  of  language. 
It  renders  the  returns,  as  to  the  capital  stock,  and  the  man- 
ner in  which  it  is  made  up,  if  not  corrected  in  some  other 
way,  not  only  worthless,  but  mischievous  in  their  tendency  to 
mislead.  This  the  commissioners  have  recognized  ; for  while 
seeming  to  favor  this  construction  of  the  law  (having  adopted 
it  from  the  Railroad  Commissioners  of  Massachusetts,  before 
the  so-called  construction  by  the  legislature  in  1875),  they 
interpolated  into  the  schedule  then  in  use  certain  questions, 
in  addition  to  those  required  by  law,  in  the  returns  of  railroad 
companies  under  the  head  of  “ Capital  Stock  ; ” which  were 
designed  to  obviate  the  evils  resulting  from  such  a construc- 
tion of  the  law. 

As  to  the  fifth  charge  it  is  true  that  the  commissioners  in 
the  text  of  their  report,  for  1875,  speak  simply  of  the  paid-in 
capital,  using  the  expression  as  equivalent  to  “ the  amount  of 
full-paid  capital  stock  issued.” 

As  to  the  sixth  and  last  charge,  we  find  that  while  it  is 
true  that  in  the  tables  referred  to  is  a column  under  the  title 
of  Capital  Stock,”  headed  “Amount  paid  in,”  yet  we  also 
find,  that  it  is  expressly  stated  that  these  tables  are  compiled 
from  the  annual  returns  for  1874  of  the  railroad  companies, 
in  which  the  expression  “ capital  stock  actually  paid  in  ” was 
the  form  at  that  time,  fixed  by  law,  so  that  the  column  could 
not  properly  have  been  otherwise  headed ; and  as  the  tables 
only  contained  the  principal  items  from  these  returns,  it  could 
not  be  expected  that  the  few  instances  of  watered  stock,  so 
called,  would  be  tabulated.  The  attention  of  the  General  As- 
sembly and  of  the  public  was  called  to  the  subject  of  “ watered 
capital  ” very  fully  by  the  commissioners  in  their  report  for 
that  year,  two  full  pages  having  been  devoted  to  the  matter. 

We  therefore  find  that  the  charge  that  the  commissioners 
have  “ suppressed  and  concealed  the  facts,”  in  regard  to 
watered  stock,  is  unsupported. 


13 


Watered  Stock. 

Your  committee  find  that  the  following  named  companies 
have  issued  so-called  watered  capital  stock,  for  which  no 
equivalent  was  paid  in  money  by  the  stockholders,  to  the  fol- 


lowing  amounts,  to  wit : 

Paid  in 

Watered 

Total  Capital 

Capital. 

Capital. 

Issued. 

Danbury  & Norwalk  Company, 

1870. 

$338,417 

$261,583 

$600,000 

Shore  Line  Railway  Company, 

1870. 

740,971 

259,029 

•1,000,000 

Naugatuck  Railroad  Company, 

1868. 

1,227,375 

591,525 

1,818,900 

New  Haven  & Northampton  Co., 

1874. 

1,912,000 

548,000 

2,460,000 

New  York  & New  Haven  Co  , 

1870. 

5,047,375 

952,625 

6,000,000 

Hartford  & New  Haven  Co., 

1870. 

3,482,900 

1,517,100 

5,000,000 

Total,  - - - $12,749,038  $4,129,862  $16,878,900 


The  committee  find  that  the  issue  of  this  watered  capital 
stock  was  concealed  and  covered  up,  by  reporting  it  first  as 
“ paid  in,”  and  afterwards  as  “ actually  paid  in,”  and  by  a 
re-valuation  of  the  roads  and  other  corporate  property. 

The  committee  do  not  find  any  law  expressly  authorizing 
a railroad  company  to  issue  capital  stock  except  for  a u bond 
fide  investment  of  actual  value,”  but  they  are  informed  and 
find  that  the  Danbury  & Norwalk  Railroad  Company  issued  its 
watered  capital  stock  under  that  clause  of  its  charter  which 
permitted  it  to  increase  its  capital  stock  $1,200,000,  u the 
same  to  be  issued  at  such  time  and  in  such  form  and  manner 
as  the  stockholders  * * * may  direct.” 

That  the  Naugatuck  Railroad  Company  issued  its  $591,525 
of  watered  capital  under  that  provision  of  its  charter  that  gave 
to  the  directors  of  the  company  “ full  power  to  make  such 
rules  and  regulations  as  they  shall  deem  needful  and  proper 
touching  the  disposition  and  management  of  the  stock,  prop- 
erty, estate,  and  effects  of  said  company,  not  contrary  to  the 
laws  of  this  State,  or  of  the  United  States.” 

That  the  New  Haven  & Northampton  Company  issued  its 
$548,000  of  watered  capital  stock  under  that  clause  of  its 
amended  charter  passed  in  1872,  which  authorizes  it  to  in- 
crease its  capital  stock  $2,000,000,  to  be  “ issued  in  such 
manner  as  the  directors  of  the  company  shall  determine.” 

(See  Private  Laws  of  1872,  p.  23.) 


14 


New  York  & New  Haven  Railroad  Company. 

The  original  charter  of  this  company  passed  in  1844, 
authorized  a capital  stock  of  $3,000,000,  and  gave  the  direc- 
tors full  power  to  make  such  “ by-laws,  rules  and  regulations, 
touching  the  disposition  and  management  of  the  stock  as 
they  should  deem  needful  and  proper.’5 

In  1855  an  Act  was  passed  authorizing  the  directors  of  the 
New  York  & New  Haven  Railroad  Company  to  settle  and 
compromise  the  claims  growing  out  of  controversies  relating 
to  the  fraudulent  issues  of  stock  by  Schuyler.  By  the 
terms  of  this  law,  the  company  was  fully  authorized  and 
empowered  to  issue  $2,000,000  of  additional  capital  stock, 
“ in  such  way  and  manner,  and  upon  such  terms  and  condi- 
tions as  they  may  deem  expedient,  any  law  to  the  contrary 
notwithstanding.” 

In  1866  this  company  was  authorized  to  increase  its  cap- 
ital stock  to  an  additional  amount  of  $1,000,000,  for  the  pur- 
pose off  paying  of  its  bonds  to  the  same  amount. 

In  1868  the  company  was  further  authorized  to  increase  its 
capital  stock  to  an  additional  amount  of  $3,000,000. 

The  Hartford  & New  Haven  Railroad  Company. 

The  original  charter  of  this  company  fixed  the  limit  of  its 
capital  at  $1,000,000,  and  conferred  upon  the  directors  “ full 
power  to  make  such  rules,  by-laws  and  regulations  as  they 
should  deem  needful  and  proper  touching  the  disposition  and 
management  of  the  stock  of  the  company.” 

In  1839  this  company  was  authorized  to  add  $200,000  to 
the  amount  of  its  capital  stock. 

In  1842  a further  increase  of  $500,000  was  authorized. 

In  1857  a further  increase  of  $650,000  was  authorized,  not 
to  be  sold  at  less  than  par. 

In  1869  a further  increase  of  $3,000,000  of  capital  stock 
was  authorized. 

In  1845  the  “ Branch  Company  ” was  chartered  with  an 
authorized  capital  stock  of  $100,000,  for  the  purpose  of  con- 
structing a branch  road  from  the  main  line  of  the  Hartford  & 


15 


New  Haven  Railroad  in  the  city  of  Hartford  to  the  Connecti- 
cut River,  with  full  power  to  make  joint  stock  and  consoli- 
date with  said  Hartford  & New  Haven  Railroad. 

This  consolidation  was  effected  by  the  action  of  both  com- 
panies in  1850. 

In  1844  the  “ Middletown  Railroad  Company,”  was 
chartered  with  authority  to  construct  a railroad  from  the 
city  of  Middletown  to  the  main  line  of  the  Hartford  & New 
Haven  Railroad,  with  full  power  to  consolidate  and  make 
joint  stocks  with  the  latter  company.  The  amount  of  the 
capital  stock  was  fixed  in  the  original  charter  at  8100,000, 
which  in  1849,  by  act  of  the  Legislature,  was  increased  to 
8250,000. 

The  Middletown  Railroad  Company  was  consolidated  with 
Hartford  & New  Haven  Railroad  Company  by  the  action  of 
both  companies  in  1850. 

In  1852  “ New  Britain  & Middletown  Railroad  Company  ” 
was  chartered  with  an  authorized  capital  stock  of  8100,000, 
which  by  act  of  the  Legislature,  passed  in  1864,  was  increased 
to  8150,000. 

This  company  was  consolidated  with  the  Hartford  & New 
Haven  Railroad  Company,  under  the  provisions  of  its  charter 
and  by  the  action  of  both  companies,  in  1868. 

In  1868  the  “ Windsor  Locks  & Suffield  Railroad  Company  ” 
was  chartered  with  an  authorized  capital  stock  of  8200,000, 
with  power  and  authority,  under  an  amendment  to  its  charter 
passed  in  1869,  to  consolidate  and  make  joint  stocks  with  the 
Hartford  & New  Haven  Railroad  Company.  This  consolida- 
tion was  effected  by  action  of  both  companies  in  1871. 

In  1885  the  “ Hartford  & Springfield  Railroad  Company  ” 
was  chartered  with  an  authorized  capital  stock  of  81,000,000, 
and  under  subsequent  authority  granted  by  the  legislatures  of 
the  States  of  Massachusetts  and  Connecticut,  was  authorized 
to  consolidate  and  make  joint  stocks  with  the  Hartford  & 
New  Haven  Railroad  Company. 

This  consolidation  was  effected  by  the  action  of  both  com- 
panies in  1847. 

The  Hartford  & New  Haven  Railroad  Company  therefore, 


16 


prior  to  its  consolidation  with  the  New  York  & New  Haven 
in  1872,  was  a corporation  made  up  from  the  following  named 
corporations,  which  had  from  time  to  time  been  merged  into 
and  consolidated  with  it,  viz. : 

The  Hartford  & New  Haven  Railroad  Company. 

The  Hartford  & Springfield  Railroad  Company. 

The  Branch  Railroad  Company,  Hartford. 

The  Middletown  Railroad  Company. 

The  New  Britain  & Middletown  Railroad  Company. 

The  Windsor  Locks  & Suflield  Railroad  Company. 

The  amount  of  capital  stock  which  the  Hartford  & New 
Haven  Railroad  Company  up  to  the  time  of  its  consolidation 
with  the  New  York  & New  Haven  Railroad  Company,  was 
authorized  to  issue  under  its  charter  and  amendments  thereto, 
and  under  the  charters  of  the  several  corporations  with  which 
it  was  consolidated  under  sanction  of  law,  was  as  follows  : 


Capital  stock  authorized  by  original  charter,  - 
“ “ amendment,  1839, 

“ “ “ 1842, 

“ “ “ 1857, 

“ “ “ 1869, 

Stock  authorized  by  consolidation  with — 

The  Branch  Company,  - 

The  Middletown  Railroad  Company,  - 

The  New  Britain  & Middletown  Railroad  Company, 

The  Windsor  Locks  & Suflield  Railroad  Company, 

The  Hartford  & Springfield  Railroad  Company, 


$1,000,000 

200,000 

500.000 

650.000 

3.000. 000 

100.000 

250.000 

150.000 

200.000 

1.000. 000 


Total  stock  authorized,  ....  $7,050,000 


As  to  whether  said  companies  are  charging  high  rates 
for  the  transportation  of  passengers  and  freight,  the  com- 
mittee have  been  unable  to  ascertain,  because  they  have  not 
time  to  go  into  that  branch  of  the  investigation. 

Your  committee  find  that  the  issuing  of  watered  stock  by 
the  said  companies,  enables  them  to  conceal  very  effectually 
from  the  public  the  amount  of  their  earnings  on  the  money 
actually  invested. 

In  conclusion  your  committee  say  that  the  investigation  in 
which  they  have  been  engaged,  owing  to  the  want  of  time,  has 
been  in  no  respect  as  full  and  complete  as  they  desired  to  make 


17 


/■ 


it.  They  have  done  what  they  could  in  the  busy  hours  of  a 
closing  session,  towards  accomplishing  the  work  set  before 
them.  They  are  sensible  that  the  field  is  not  exhausted. 

No  impediments  were  placed  in  the  way  of  your  committee. 
Those  to  whom  they  applied  for  information  responded  witli 
the  utmost  alacrity  and  cheerfulness. 

Owing  to  the  limited  character  of  the  investigations,  your 
committee  are  not  prepared  to  recommend  any  legislation  in 
regard  to  the  evils  complained  of. 

All  of  which  is  respectfully  submitted. 

DWIGHT  MARCY, 

M.  A.  NICKERSON, 
SAMUEL  M.  GARDNER, 
EDWARD  F.  JONES, 
CHARLES  W.  CLARK, 
HORACE  WHEELER, 
GEORGE  M.  BLEVIN, 
JOHN  M.  FORD. 


3 


